Grimmer picture seen for Social Security, Medicare

Both programs' funds to be exhausted sooner than forecast last year

WASHINGTON (MarketWatch) -- Social Security's trust fund will be exhausted in 2037, four years earlier than estimated last year, the program's trustees projected Tuesday, as the recession forced a reassessment of the huge entitlement program's finances.

The trustees said Social Security can continue to pay full benefits for 30 years. After that, the program can cover about 75% of scheduled benefits, they said.

But the trustees also painted a grim picture for Medicare, saying that Medicare's hospital insurance trust fund would be insolvent in 2017. That's two years earlier than the trustees projected in last year's report. The trustees issued annual reports on both programs Tuesday.

"This year's trustees reports once again reminds us that the longer we wait to address the long-term solvency of Medicare and Social Security the sooner those challenges will be upon us and the harder the options will be," Treasury Secretary Timothy Geithner said in a statement. Read a summary of the reports.

Medicare's annual costs -- which in 2008 were equal to 75% of the costs of Social Security -- are now projected to surpass Social Security's in 2028.

Sen. Charles Grassley, the top Republican on the Senate Finance Committee, said the report underscores the need to shore up Medicare.

"Necessary policy reforms to add efficiency and improve Medicare's fiscal health without cutting benefits will take time to implement," Grassley said in a statement. "If Congress waits, the savings from those changes won't materialize until after the program becomes insolvent. At that point, the only options would be cutting provider payments, reducing benefits, or raising payroll taxes."

Bigger budget deficits

Geithner met Tuesday afternoon with Secretary of Health and Human Services Kathleen Sebelius, Secretary of Labor Hilda Solis and Social Security Administration Commissioner Michael J. Astrue to discuss the financial situation of the Social Security and Medicare trust funds. The four make up the trustees.

The trustees' report comes a day after the White House said it expects bigger U.S. budget deficits this year and next year than previously forecast.

On Monday, the Office of Management and Budget revised the fiscal 2009 deficit upward by $89 billion to $1.84 trillion, a level not seen since 1945. Next year's deficit forecast was raised $87 billion, to $1.26 trillion.

Meanwhile, the Treasury Department said Tuesday that the U.S. government recorded a $20.9 billion deficit last month, the first April deficit in 26 years.

Through the first seven months of the fiscal year, the federal deficit has mounted up to a record $802.3 billion, compared with $153.5 billion at the same time last year. The deficit is projected to hit a record $1.75 trillion for the full year. See full story.

The Medicare and Social Security reports also come as President Barack Obama is trying to advance health-care reform in Congress. On Monday, Obama praised what he called a "historic" commitment by health-care providers to try to cut costs by $2 trillion over the next decade. See full story.

"The president believes that we have to cut costs for Medicare; we have to put it back on a more sustainable path. That's exactly why he believes that we need fundamental health care reform, which he's pursuing," White House press secretary Robert Gibbs said on Tuesday.

Sebelius called the Medicare report "a wake-up call for everyone who is concerned about Medicare and the health of our economy.

"It's yet another sign that we can't wait for real, comprehensive health reform," she said.

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